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Press Release

The Hong Kong Special Administrative Region Government and the Central People's Government today (October 18) reached an agreement on the liberalisation measures under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III).

The Financial Secretary, Mr Henry Tang; and the Vice Minister of Commerce, Mr Liao Xiaoqi, signed the legal text of CEPA III this afternoon after the High Level Meeting of the Joint Steering Committee under
CEPA.

Welcoming the further liberalisation measures under CEPA III, Mr Tang said: "CEPA adopts a building block approach and I am pleased that both sides have agreed to introduce new liberalisation measures on top of the substantial measures provided under CEPA I and II."

"These additional measures will offer new business opportunities in the Mainland for Hong Kong enterprises and professionals and enhance Hong Kong's attractiveness to overseas investors. They will also help sustain Hong Kong's broad-based economic recovery and facilitate creation of new jobs in the private sector," said Mr Tang.

Under CEPA III, the Mainland agrees to give all products of Hong Kong origin tariff free treatment starting from January 1, 2006, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs) being agreed and met.

The ROOs for 261 products covered under CEPA III have already been worked out. The overwhelming majority of the agreed ROOs basically resemble the liberal rules adopted in CEPA I and II.

Under the first three phases of CEPA, Hong Kong and the Mainland have already reached agreement on the CEPA ROOs for 1,369 products. For products that have no agreed ROOs for the time being, their relevant ROOs will be jointly worked out twice a year, instead of once a year under CEPA II and III, after 2005 on application by the trade. This will provide further flexibility to interested manufacturers.

The Mainland also agrees to amend the existing ROOs to waive the 30 per cent value adding requirement for watches of Hong Kong brand names. The revised rules should be conducive to the further development of the timepiece industry in Hong Kong.

For instance, the Mainland agrees to allow each company set up in the Mainland by Hong Kong service suppliers on a wholly owned basis to build and operate more than one cinema in different places. The turnover thresholds for setting up travel agencies in the Mainland will also be lowered.

The Mainland has also agreed to allow Hong Kong legal representative offices to enter into association with Mainland law firms in different cities of the same province; and to allow Hong Kong people practicing law in the Mainland to be employed at the same time by a law firm outside the Mainland.

All the liberalisation measures will take effect on January 1, 2006, and the Mainland will work out and promulgate the necessary implementation rules and regulations as appropriate.

The two sides agree that trade and investment facilitation plays a crucial role in the successful implementation of CEPA. Many of the measures under CEPA III have been worked out with the intention to enhance the flow of trade and investment between the two places.

These include the exemption of textiles and clothing products under Hong Kong's Outward Processing Arrangement from the Mainland's regime of export duty imposed early this year as a result of the special safeguard measures of the US and the EU. The exemption has already taken effect.

The Mainland and Hong Kong signed the main text of CEPA on June 29, 2003 (known as CEPA I) and its Supplement on October 27, 2004 (known as CEPA II). Since then CEPA has been offering new business opportunities in the Mainland for Hong Kong businesses and service suppliers, enhancing the attractiveness of Hong Kong to overseas investors.

The zero import tariff preference, including the adoption of more flexible ROOs for watches, has the potential to attract to Hong Kong manufacturing of brand name products, or manufacturing process with high-value added content or substantial intellectual property input.

The Administration's study on the economic impact of CEPA I revealed that the overwhelming majority of respondents considered that CEPA I was beneficial to the Hong Kong economy. About 29,000 new jobs have been and are forecast to be created for Hong Kong in the first two years of implementing CEPA I, including the Individual Visit Scheme.

CEPA is an open and developing platform. The government will seek to engage the Mainland authorities on further liberalisation of trade in goods and services in due course.